| | | Market Snapshot
| Dow | 38834.86 | +56.76 | (0.15%) | | Nasdaq | 17862.23 | +5.21 | (0.03%) | | SP 500 | 5487.03 | +13.80 | (0.25%) | | 10-yr Note | +27/32 | 4.22 |
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| | NYSE | Adv 1571 | Dec 1171 | Vol 940 mln | | Nasdaq | Adv 1836 | Dec 2405 | Vol 5.8 bln |
Industry Watch
| Strong: Energy, Real Estate, Financials, Health Care, Information Technology |
| | Weak: Consumer Discretionary, Communication Services, Materials |
Moving the Market
-- Mixed showing in mega caps keeping market in check
-- Not a lot of conviction after last week's record highs and with markets closed tomorrow for Juneteenth
-- Drop in yields after this morning's economic data
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Closing Summary
18-Jun-24 16:25 ET
Dow +56.76 at 38834.86, Nasdaq +5.21 at 17862.23, S&P +13.80 at 5487.03
[BRIEFING.COM] The S&P 500 and Nasdaq Composite extended their record highs today in front of the holiday tomorrow. Bond and equity markets are closed Wednesday for Juneteenth.
There wasn't a lot of conviction from either buyers or sellers in front of the break and due to the understanding that stocks continue to hit all-time highs. Advancers had a 4-to-3 lead over decliners at the NYSE while decliners led advancers by the same margin at the Nasdaq.
Many of the top-weighted S&P 500 components closed with losses, keeping the broader market in check. Apple (AAPL 214.29, -2.38, -1.1%), Microsoft (MSFT 446.34, -2.03, -0.5%), and Meta Platforms (META 499.49, -7.14, -1.4%) were some losing standouts in that respect.
A solid jump in shares of NVIDIA (NVDA 135.58, +4.60, +3.5%) provided some offsetting support. The stock was responding to news that Delloite announced a collaboration with Hewlett Packard Enterprise (HPE 21.84, +0.31, +1.4%) and NVIDIA on co-developed generative AI solutions.
Gains in some of the aforementioned names boosted the information technology sector (+0.6%) toward the top of the leaderboard today. The financial sector was another top performer, gaining 0.6%.
Meanwhile, the consumer discretionary sector was among the top laggards, dropping 0.4%, due in part to weakness in homebuilder stocks after Lennar (LEN 148.72, -7.79, -5.0%) reporting earnings. Selling in the stock was related to disappointing outlook for a sequential decline in orders.
Treasury yields moved lower today. The 10-yr note yield settled six basis points lower at 4.22% and the 2-yr note yield declined six basis points to 4.70%.
This price action followed a batch of mixed economic data that included weaker-than-expected retail sales, stronger-than-expected industrial production, and in-line business inventories. Treasuries were also reacting to today's impressive $13 billion 20-yr bond reopening.
- Nasdaq Composite: +19.0% YTD
- S&P 500:+15.0% YTD
- S&P Midcap 400: +5.3% YTD
- Dow Jones Industrial Average: +3.0% YTD
- Russell 2000: -0.1% YTD
Reviewing today's economic data:
- May Retail Sales 0.1% (Briefing.com consensus 0.3%); Prior was revised to -0.2% from 0.0%; May Retail Sales ex-auto -0.1% (Briefing.com consensus 0.2%); Prior was revised to -0.1% from 0.2%
- The key takeaway from the report is that it reflects some slowing in consumer spending on goods that will be accounted for in weaker Q2 real GDP forecasts.
- May Industrial Production 0.9% (Briefing.com consensus 0.4%); Prior 0.0%; May Capacity Utilization 78.7% (Briefing.com consensus 78.5%); Prior was revised to 78.2% from 78.4%
- The key takeaway from the report was that gains were widespread across the major market groups, with particular strength in manufacturing output that should mitigate hard-landing concerns.
- April Business Inventories 0.3% (Briefing.com consensus 0.3%); Prior -0.1%
Wednesday's calendar features the release of the weekly MBA Mortgage Applications Index at 7:00 ET and the June NAHB Housing Market Index at 10:00 ET.
Treasuries settle with solid gains
18-Jun-24 15:30 ET
Dow +9.00 at 38787.10, Nasdaq +6.73 at 17863.75, S&P +11.05 at 5484.28
[BRIEFING.COM] Stocks are holding steady in front of the close.
Shares of NVIDIA (NVDA 135.64, +4.64, +3.5%) picked up steam after news that its aiming to purchase startup Shoreline.io, according to Bloomberg.
The 10-yr note yield settled six basis points lower at 4.22% and the 2-yr note yield declined six basis points to 4.70%. Buying activity picked up in Treasuries following an impressive $13 billion 20-yr bond reopening.
Stocks move mostly sideways; earnings news after the close and Thursday morning
18-Jun-24 15:05 ET
Dow -3.08 at 38775.02, Nasdaq -0.11 at 17856.91, S&P +8.08 at 5481.31
[BRIEFING.COM] The major indices moved slightly higher in recent action. Still, the market has traded in narrow ranges through the entire session.
KB Home (KBH) reports earnings after today's close.
As a reminder, markets are closed tomorrow for Juneteenth. Looking ahead to Thursday, Kroger (KR), Accenture (ACN), Jabil (JBL), Darden Restaurants (DRI), and others report earnings ahead of the open.
Teradyne higher on analyst comments; Ball slips in S&P 500 after guidance miss
18-Jun-24 14:30 ET
Dow -2.69 at 38775.41, Nasdaq -5.17 at 17851.85, S&P +6.00 at 5479.23
[BRIEFING.COM] The S&P 500 (+0.11%) is the only major average in positive territory on Tuesday afternoon.
Elsewhere, S&P 500 constituents GE Vernova (GEV 179.09, +10.33, +6.12%), Walgreens Boots Alliance (WBA 16.02, +0.87, +5.74%), and Teradyne (TER 151.17, +6.43, +4.44%) pepper the top of the standings. GEV is seeing bullish options flows, while TER caught a target raise to $170 out of UBS this morning.
Meanwhile, Ball Corp (BALL 62.94, -3.50, -5.27%) is today's top laggard behind lower than expected guidance at its Investor Day.
Gold higher following weak retail sales data
18-Jun-24 14:00 ET
Dow +39.81 at 38817.91, Nasdaq +23.30 at 17880.32, S&P +14.43 at 5487.66
[BRIEFING.COM] The major averages have steadily moved higher over the last half hour, the tech-heavy Nasdaq Composite (+0.13%) now in second place.
Gold futures settled $17.90 higher (+0.8%) to $2,346.90/oz, as weaker-than-expected retail sales data served to aid interest rate cut optimism.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $105.28.
Patterson Companies gives investors something to smile about after stock got drilled (PDCO)
Shareholders of Patterson Companies (PDCO) haven't had much to smile about this year with the stock down by about 20% on a year-to-date basis entering today's session, but a better-than-feared Q4 earnings report is giving investors something positive to chew on. The dental and animal health product maker and distributor met EPS and revenue expectations, while also issuing in-line FY25 EPS guidance, providing some relief that PDCO expects business to remain stable, despite the persistently high interest rates and macroeconomic uncertainties.
- Those macro-related headwinds did have an impact in Q4, however. In particular, PDCO's dental equipment business had a tough quarter with internal sales declining by 12% due to soft demand in the CAD/CAM categories. A moderation in equipment spending, combined with unfavorable yr/yr comparisons, weighed on growth.
- Making matters worse, a major cybersecurity attack at Change Healthcare -- PDCO's claims processing vendor -- resulted in many of the company's dental practices being unable to use Change Healthcare's services. In turn, this created a setback for PDCO's value-added services business, which generates claims management fees through its software integration with Change Healthcare.
- PDCO noted that the cybersecurity attack caused a $0.04 negative impact to adjusted EPS.
- Overall, though, revenue for PDCO's Dental segment decreased by just 3.8% as strength in the consumables business helped to offset these issues. On a yr/yr basis, the consumables portfolio delivered growth of nearly 4%, and if the deflationary effect on certain infection control products is excluded, the growth was even stronger at nearly 6%.
- Turning to Animal Health, internal sales grew by approximately 3%, driven by strength in the production animal business. This segment also achieved operating margin expansion as a result of positive sales mix and disciplined cost management. On a company-wide basis, though, gross margin contracted by 90 bps yr/yr to 21.8%, mainly due to the revenue shortfall in Dental that's related to the cybersecurity incident.
- Looking beyond the Q4 results, PDCO's long-term strategy remains in place and that plan includes driving above-market revenue growth by expanding its investments in software and value-added services. During the earnings call, the company commented that its investments in FY24 are yielding meaningful progress on the software side.
- A couple notable examples include the recently introduced Patterson CarePay+, a one-stop-shop for patient financing, dental insurance, and payment solutions, and a recent agreement with Pearl to integrate a pathology detection feature set called Second Opinion into PDCO's practice management software.
The main takeaway is that while PDCO's results weren't necessarily sparkling, they were good enough to provide a strong dose of Novocain with the stock trading near multi-year lows heading into the print.
Boston Scientific makes a smooth acquisition with buyout of Silk Road Medical (BSX)
Medical device company Boston Scientific (BSX) has been on roll, as illustrated by the stock soaring by 34% on a year-to-date basis to all-time highs last week, and now the company is turning to the M&A market to help keep its momentum going. In an effort to bolster its vascular portfolio, BSX announced a definitive agreement to acquire Silk Road Medical (SILK) for $27.50/share in cash, representing an equity value of approximately $1.26 bln.
- The buyout price equates to a premium of 27% versus yesterday's closing price for SILK, which is considerable, but not egregious, in our view. Based on SILK's FY24 revenue guidance of $194-$198 mln, BSX is paying about 6.4x sales to acquire SILK. That seems like a reasonable multiple given that the midpoint of SILK's revenue outlook represents healthy y/y growth of 11% with plenty of runway ahead for SILK's leading product, the TCAR System.
- The TCAR System is the crown jewel of this acquisition. Unlike traditional methods of treating carotid artery disease, such as surgery or stent placement, TCAR uses a minimally invasive procedure that reverses blood flow away from the brain to prevent plaque from breaking loose in the carotid artery and causing a stroke. Since receiving FDA approval in 2015, nearly 100,000 total patients have been treated with TCAR and physician adoption is still on the rise.
- Driven by deepening TCAR adoption among physicians, TCAR procedures increased by 15% to 6,725 in Q1. SILK also credits higher awareness among patients themselves, and expanded Medicare coverage, for the procedure growth. About two years ago, the Centers for Medicare & Medicaid Services announced expanded coverage for TCAR to include standard surgical risk patients within the Vascular Quality Initiative’s TCAR Surveillance Project.
Financially speaking, the addition of SILK won't move the needle too much for BSX in the near-term. In fact, BSX stated that the impact to adjusted EPS is expected to be immaterial in 2024 and 2025, but accretive thereafter. Over time, though, BSX's extensive sales and distribution network should enable the TCAR System to become a more meaningful contributor, augmenting the company's bread-and-butter cardiovascular business, which experienced strong sales growth of nearly 16% in Q1.
La-Z-Boy is no couch potato; stock surges on better than expected AprQ result (LZB)
La-Z-Boy (LZB +18%) is trading sharply higher after wrapping up FY24 on a strong note. The furniture company reported a hefty EPS beat for Q4 (Apr), its largest beat of the fiscal year. Revenue dipped 1.4% yr/yr to $553.5 mln, but that also was much better than expected. The furniture industry is going through a rough time right now. Consumers are not spending as much on discretionary items, like furniture, and higher interest rates make purchases more expensive.
- More importantly, housing turnover is a major catalyst to spur consumers to buy new furniture. However, higher rates are causing homeowners to stay in their current home so as not to relinquish their low mortgage rates. As a result, slow housing turnover is dampening demand. LZB says that higher-for-longer interest rates and housing turnover near 30-year lows is negatively impacting store traffic.
- Longer term, LZB is confident that its industry is structurally well-positioned to return to growth due to the significant housing shortage. Supply has not kept up with population growth, with industry estimates of a 2-6 mln housing unit shortage. LZB believes that, as soon as interest rates start moving lower and housing turnover starts to increase, it will see industry growth resume and potentially accelerate to make up some of the current shortfall.
- Specifically to Q4, LZB's written sales again outperformed the industry with Q4 total written sales for the Retail (company-owned La-Z-Boy Furniture Galleries) segment up 1% yr/yr, and written same-store sales down -5%. Trends were strongest in the first half of the quarter around key holiday events and a recovery from January weather events. However, furniture and home furnishings spending remains depressed with overall traffic trends challenged and housing activity down.
- LZB says its execution is the strongest it has ever been, including conversion rates at all-time highs and average ticket and design sales trending up for the year. LZB expects industry fundamentals to remain volatile for the near term, but remains confident in its ability to outperform the market and gain share longer term. Looking ahead to Q1 (Jul), LZB says it's off to a good start and it's encouraged by solid Memorial Day results.
- LZB's history has been as a manufacturer primarily serving North America. However, in recent years, it has been shifting more focus from wholesale to its own retail stores. Its direct-to-consumer business through Retail and its recent Joybird acquisition (focused on online sales) now represents about half of sales. This is important because DTC sales are higher margin. With that said, LZB still saw a 40 bps yr/yr decline in Q4 non-GAAP operating margin to 9.4%.
Overall, investors clearly like what they saw in La-Z-Boy's Q4 report. The furniture industry is difficult right now, mainly because people are not moving as much and therefore not buying new furniture. However, LZB more than held its own this quarter and performed much better than expected. Also, while the near term outlook appears muted, LZB is confident than when rates decline, there could be some nice pent up demand. Also, LZB's balance sheet is solid as it ended Q4 with $341 mln in cash, or $7.94 per share, with no external debt.
Lennar moves lower despite exceeding expectations across the board in Q2 (LEN)
Not many blemishes stuck out in Lennar's (LEN -2%) Q2 (May) report. While the home builder exceeded earnings estimates by a slimmer margin than last quarter, it was still a double-digit beat. Meanwhile, revenue cleared analyst expectations easily, a return to form following a rare top-line miss in Q1 (Feb). Also, key quarterly metrics, including new orders, deliveries, and gross margins on home sales, surpassed LEN's targets, and the company's Q3 (Aug) guidance signaled another quarter of decent growth.
So why are sellers taking control today? LEN has been stuck around all-time highs for several months following a rapid ascension in November. Part of LEN's impressive move was the anticipation of interest rate cuts in 2024, making housing more affordable and enticing existing homeowners to upgrade. However, halfway through 2024, there have been no rate cuts, and 30-year fixed-rate mortgage rates hit over 7.0% again in MayQ, keeping existing home sales suppressed, with the metric slipping by 1.9% yr/yr in April.
Against the backdrop of unfavorable interest rates, LEN's Q2 report, albeit sound, does not instill the utmost confidence that the housing market is rock solid. However, it does not ring any alarms either, resulting in modest profit-taking today. The stock still sits nearly 50% higher than where it was in late October, underpinning a sustained optimism that long-term tailwinds, including an undersupply of new homes and changing demographics, will eventually lead to reaccelerating growth.
- LEN registered EPS of $3.45, a 17% improvement yr/yr, supported by a 9% jump in total revenue to $8.77 bln. The company continued to leverage incentives to seal the deal on home sales, helping prop up its top line. However, despite using incentives, LEN still delivered gross margins on home sales of 22.6%, a basis point better than its 22.5% prediction.
- These headline results reflected healthy demand, a development LEN has touched on repeatedly over the past several quarters. Further illuminating this trend were new orders climbing by 19% yr/yr to 21,293, landing at the high end of LEN's 20,900-21,300 forecast. Additionally, deliveries were 15% higher yr/yr at 19,690, topping the company's 19,000-19,500 estimate. Another reflection of healthy demand showed up in LEN's backlog, which increased to 17,873 homes, giving it a dollar value of $8.2 bln compared to $7.4 bln last quarter.
- For Q3, LEN projected new orders, deliveries, and gross margins on home sales, roughly in line with what it recorded in Q2. For the year, LEN remains committed to delivering 80,000 homes with a margin consistent with FY23 (Nov), around 23.3%.
Without a more inspiring Q2 report, investors are left focusing on the problems within the housing market. As interest rates stay elevated, LEN could begin running into structural issues down the line, especially if current orders branch from individuals anticipating rate cuts this year. Still, over a longer time frame, LEN rests on a solid foundation to reignite growth.
Lastly, keep an eye on peers KB Home (KBH), which reports MayQ results today after the close; D.R. Horton (DHI), which reports JunQ results on July 18; and PulteGroup (PHM), which reports JunQ numbers on July 23.
Ollie’s Bargain Outlet marches to multi-year highs following an upgrade at JP Morgan today (OLLI)
Ollie's Bargain Outlet (OLLI +7%) marches to multi-year highs today after JP Morgan upgraded the discount retailer to "Overweight" from "Neutral," as it sees accelerating growth over the near term. Following a sharp pullback in April, shortly after OLLI issued underwhelming FY25 (Jan) earnings and revenue guidance, shares have moved over +35% higher, reaching levels not achieved since July 2021.
Briefing.com notes that buying in at multi-year highs adds risk as scrutiny becomes heightened and profit-taking jitters begin creeping in. However, OLLI's previous quarterly results showcase its impressive ability to stand out among its peers, likely driving additional market share capture as it capitalizes on a broad trade-down effect amid a cumulative inflationary environment.
- After OLLI's Q1 (Apr) comps, revs, and margins all topped expectations, it raised its FY25 outlook, projecting adjusted EPS of $3.18-3.28, revs of $2.257-2.277 bln, and comps of +1.5-2.3%, up from +1.0-2.0%. Management reiterated that the current economy is generating a strong closeout market -- allowing OLLI to snatch up goods at favorable prices -- and a strained end-consumer -- nudging them toward discount retailers more frequently.
- OLLI is not alone in the discount retail market. One of its closest rivals, Big Lots (BIG), operates similarly, snatching up goods from companies with excess inventory and selling them at its locations at attractive prices. However, BIG has struggled extensively despite selling into an environment similar to OLLI. The key difference is that BIG offers significantly more highly discretionary products, such as furniture, which comprises a quarter of its annual revs. Meanwhile, OLLI focuses on consumables, better shielding it from the continued weakness in discretionary spending.
- By offering a more favorable mix of products, OLLI is attracting BIG shoppers into its doors, taking advantage of prices 20-70% below the stores the products originated. This dynamic is expected to persist over the near term. OLLI mentioned earlier this month that large retailers supplied by prominent manufacturers are constantly introducing new products and packaging, leading to a noticeable uptick in the closeout industry. OLLI remains the largest buyer of closeout products, putting further distance between it and its next-closest competitor.
OLLI has been firing on all cylinders. After a brief hiccup sparked by concerning FY25 guidance, investors have been piling into the stock. The consistent uptrend is not without good reason as OLLI continues to demonstrate its competitive edge in the discount retail market. Lastly, it is worth noting that OLLI is amid a leadership transition, announcing that CEO John Swygert will move to executive chairman early next year. He will be succeeded by Eric van der Valk, OLLI's prior COO. Given OLLI's success over the past few years, the incoming CEO may not implement any sweeping changes. However, the transition could generate volatility.
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